Backscratching society

The Secretary of the Treasury in President Obama’s first term resigned early this year, and we lost track of him for months. But in November, Geithner reappeared, having spun himself through Washington’s revolving door – whoosh, whoosh, whoosh – and flung himself all the way up to Wall Street, landing softly in the cushy quarters of Warburg Pincus, one of America’s top 10 private-equity empires. Yes, the guy who was responsible for rescuing and regulating Wall Street’s too-big-to-fail, multibillion-dollar, financial casinos is now president of one.

Writing in The New Yorker magazine, Andrew Huszar says we need not be surprised that the former treasury chief is cashing in on his insider knowledge and contacts. Huszar worked at the New York Federal Reserve bank a decade ago and saw Geithner in action when the up-and-coming bank whiz became president of that powerful overseer of Wall Street firms. He says that, rather than promoting knowledgeable regulators from within the Fed, Geithner broke with tradition (and prudence) to put top bankers from JPMorgan Chase, American Express, Goldman Sachs and other powerhouse firms in key regulatory positions. In other words, the new honcho built his own revolving door in the New York Fed, wooshing bankers in to regulate themselves.

Thus, when Obama promoted Geithner to head the Treasury Department, Huszar was again unsurprised that our nation’s top financial official quickly proved to be the bankers’ comforter and protector. “Geithner never publicly advocated for the truly forceful and clean revamp of Wall Street,” writes Huszar, instead using his influence to convince “Obama and other lawmakers to be more accommodating to the big banks.”

Whether spinning from the inside out, or from the outside in, Geithner is proof that the Washington-Wall Street revolving door serves bankers, not the public interests. We need to weld that door shut, seal it off with concrete, wrap it with razor wire and put motion detectors on it.

In contrast to Geithner’s Jell-O spine, one financial regulator showed some real backbone during Obama’s first term, proposing rules to prevent a repeat of the Wall Street crash and bailout syndrome. He is Gary Gensler, head of the Commodity Futures Trading Commission, and he dared to push the Treasury Secretary and other major bank supervisors to join him in seriously limiting Wall Street’s cavalier proliferation of complex “derivatives.” As the ProPublica news service noted, these convoluted schemes are “poorly disclosed, poorly understood and could lay waste to the economy.”

So, good for Gensler, right? Yes! But of all the agency heads who are involved in writing new banking rules, guess which one was not invited this year by President Obama to stay on the job. Yes, the tough one, the one actually trying to protect the people, the one not afraid to offend Wall Street greedheads: Gary Gensler.

He’s being replaced by Timothy Massad, who appears to be more of an industry lapdog than a watchdog. Massad, a career insider, has been a corporate lawyer for banks, a lickspittle lieutenant for Timmy Geithner during his Treasury Department stint, and a chief blocker of tough provisions to stop big banks from unfairly squeezing hard-hit homeowners.

Not only is Gensler gone, but Wall Street now gets a regulator who’s being entrusted to return the agency to obscurity. What we have here is another product of the Washington-Wall Street Mutual Backscratching Society. What a disgraceful performance by all parties.